Adidas - project report

||| Background |||
adidas AG is a German sports apparel manufacturer, part of the adidas Group.
It registered as adidas AG on 18 August 1949 (with lower-case lettering:
"adidas"). The company was named after its founder, Adolf (Adi) Dassler, who
started producing shoes in the 1920s in Herzogenaurach, near Nuremberg, with
the help of his brother Rudolf Dassler who later formed rival shoe company
PUMA AG. The company's clothing and shoe designs typically include three
parallel stripes of the same color, and the same motif is incorporated into adidas'
official logos.
adidas plans to become the leader in the organised sports footwear and
sportswear market.
||| adidas in India |||
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adidas first entered India in 1989 through a licence agreement with Bata. adidas
later re-entered India for the second time in 1996 through a joint venture with
Magnum International Trading Company Ltd with an initial investment of $2.5
million to form adidas (India) Trading Pvt. Ltd. adidas holds a 100 percent stake
in the company.
The company launches every six months between 600 and 800 new designs in
footwear and between 1,500 and 2,000 new designs in apparels. The apparel
range is priced between Rs279 and Rs2700, while the footwear is priced
between Rs499 to over Rs12499. adidas' products in India are sold through 140
own outlets (excluding multi-brand outlets).
The company, which is known for football and running shoes, introduced its
cricket gear in India in 2004.
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The company adheres to strict quality and design specifications and uses the
manufacturing unit of Lakhani Footwear to manufacture the locally produced
adidas range in India.
Around 30-40 percent of the components are locally sourced.
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||| Industry Scenario |||
(as of 2003-04)
Footwear brands drew up ambitious plans targeting a larger audience and higher
market share.
MNC brands like Reebok and Adidas launched television commercials after a
gap of four years and brand shops were filled with a fresh and upgraded product
line-up.
The new distribution strategy focused on extending the reach rather than
exclusivity and at broad-basing distribution through tie-ups with branded retailers
and setting up shop in shopping malls.
For adidas, sales of higher priced footwear recorded strong growth in 2003-2004
and the company expected to close the year with a 30 percent growth.
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Pre-1997, adidas had tied up with Bata and Woodland and first began exploring
multi-brand outlets and retail malls.
Reebok was slated to grow by almost 30 percent against 22 percent in 2002-03
and focused on its global Performance Range products. Bata started retailing
other brands like Reebok, Nike and Lee Cooper.
As of 2005-06, the current premium sports goods market in India was valued
around Rs 500 crore. Within this market, adidas enjoys considerable brand
equity and is considered among the leading international brands in the country.
||| Scope of Study |||
Our group has selected the Indian Footwear (Athletic) as Product Category.
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The main multinational players in this industry are Nike, Puma, Fila, adidas &
Reebok. Indian players include Action Shoes Ltd., Liberty Footwear Co., and
Bata India Ltd.
This report will mainly consider Nike & Rbk (Reebok) as competitors for adidas.
By way of research, we have conducted a consumer survey, as well as spoken to
a few retailers of the 3 top brands in the industry.
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||| Consumers |||
In 1999, when adidas entered the Indian market, it introduced the cheapest
range of shoes it had ever sold. The new line took into account the importance of
affordability in the Indian market, and the company expected the move to expand
their customer base by 20%.
But today, the customer has changed. Andreas Gellner, MD of adidas India, tells
us: “Today’s Indian customer is aware of international fashion and technology
and he cares about them. He is also a big sports enthusiast. We have also noted
the need for constant change—which implies faster turnaround for designs and
therefore newer products.
On the other hand, the buying experience is becoming crucial. The retail scenario
in sportswear is changing accordingly—marketers are focusing on shop design
and service and on brand consistency across outlets; they are paying a premium
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on technology and innovation. This has also been impacted to a large extent by
the mall mania and the growth of the high street.”
From our meeting with adidas’ marketing executives we gathered information
about how they defined their target demographic. They target the 15-35 age
group, both males and females, with a monthly income of over Rs15000.
The consumer is typically an image-conscious sports fan, but not necessarily a
sportsman.
||| Consumer Behaviour |||
Our market research delves into the customer mindset, trying to assess the
population and coming up with demographic details as to who our target
customer is. This is being done by a two-pronged strategy of reaching out to the
young working class on the one hand (in and around NCR) and also by
assessing the student strata who are pursuing their post-graduation (IMT, DSE,
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FMS etc). This would leave us with roughly 120 separate assessments on buyer
behaviour on which we plan to base our studies.
Status so far:
Respondents: 118
Dates of response: 27-08-2006 to 17-09-2006
Demography: Students (post-graduate – 107, young working class – 11)
Method of survey: Online
Some of our observations so far:
Only around 3% of the total respondents cited Price as the number one factor
influencing their purchase decision, and another question showed that comfort,
weight and styling of the shoe were important elements of the shoe. This initially
seems to indicate that the Indian customer no longer fits the price-sensitive
stereotype, but a closer look at the results shows a different picture. The survey
also showed that 62.93% budgeted less than Rs. 2000 for their sports shoes.
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This shows that while Price is almost never the most important factor for most
respondents, it is certainly a very important consideration.
More respondents own a Reebok pair than adidas (second place) and Nike
(third), but when asked which brand they would like to own, Nike topped list,
followed by adidas and Reebok. This shows that Reebok’s Indian pricing has
managed to attract more market share than its rivals, but Nike still has the
highest brand equity and perceived value.
Nike being the world-wide leader does well on advertisements and
viewer/customer attention-catching and carries the best image of the 3 top
brands. It is the brand that people want to own.
The survey also revealed that customers felt that Sales Staff Service was the
most important part of the buying experience. With 51.46%, it beat the other 4
factors by a long way.
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||| Environmental Analysis |||
FIFA World Cup 2006 and other Football Tournaments
The World Cup's global TV and Web audience was bigger than the Olympics' or
the Super Bowl's -- 38 billion in-home viewers worldwide. Adidas was an official
sponsor and paid for the rights to shut Nike out of TV advertising in the U.S. for
all 64 games.
The retailers we spoke to acknowledged that the World Cup caused a sharp
spike in sales, both of the football (Teamgeist) and footwear & jerseys.
Globally, by end-June 2006, adidas had already sold $1.5 billion worth of football
products this year owing to the then ongoing World Cup. Football-related sales
were expected to stabilise at slightly above 1.0 billion euros in 2007 before rising
again in 2008, when the football European Championships take place. It had
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already sold a record three million replica jerseys in the wake of the football
event, including 1.5 million jerseys of the German national team.
At the previous World Cup in 2002, the company sold 1.5 million federation
jerseys and 250,000 German jerseys.
It has also sold more than 15 million of its "Teamgeist" World Cup match balls,
compared with 6.0 million of the replica ball for the 2002 tournament.
Adidas is an official sponsor, supplier and licensee of the World Cup and is
sponsoring six national teams in the tournament, including host country
Germany. Three teams sponsored by Adidas - Germany, France and Argentina -
reached the quarter-finals and France went through to the finals.
Adidas estimated its global share of the soccer footwear market rose by 1-2
percentage points to 35-36 percent at the end of the first quarter.
The company also announced that it has signed a long-term partnership to be
the global sponsor for Euro 2008, which will take place in Austria and
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Switzerland. It has also extended its partnership with the UEFA Champions
League to become the official ball supplier until 2009.
BPO Boom
This booming industry has emerged as a boon for the hundreds of thousands of
job-hunting Indian youth and aims to grow into Rs.100,000 crore industry
generating over 1.1 million jobs by 2008.
As we shall explain later, the Call Centre Crowd is characterised by high
disposable income, which is spent on lifestyle products. Therefore, this
constitutes a segment of increasing importance for adidas.
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||| Retail |||
We visited retailers of leading footwear brands in Saket (South Delhi), and we
gained an insight into the workings of the retail business. Periodical meetings are
held, where the company shows samples of its various models and products to
the retailers. It is up to the retailers to decide which products they will stock in
their shops, how and when they will put them on display and when they will be
put up for sale. Thus, retail outlets of the same brand might well have different
stocks of different products at the same time.
Sales staff is another important factor. The Reebok retailer told us that
Reebok does not allow retailers to hire their own sales staff without company
approval. All sales staff must pass the company’s test before getting the job. The
same does not apply to adidas though. Retailers for this company are allowed to
hire salespersons they feel will be effective. Training for salespeople, however,
happens across the board. Reebok believes that investing in salespeople is a
cause for their higher sales, and will be a source of sales growth in the future.
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Area Sales Managers (ASMs) are in constant touch with their retailers and
actively take their feedback and suggestions. adidas mentioned that they
occasionally employ mystery shoppers to get a better feel of the customer’s
perspective.
The décor and ambience of the stores is under the control of the retailer, but
still guided by the company’s direction. The number of posters within the store,
the type of music, etc. generally conforms to company policy.
||| Competitors |||
Nike
Nike, Inc. is a major American manufacturer of athletic shoes, apparel, and
sports equipment. It is well known for its strong sponsorship agreements with
athletes, leagues and federations, as well as many of the world's top football
clubs and national teams, including Manchester United, Arsenal F.C, Brazil and
even India.
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Nike is the leading brand in sports footwear worldwide. In India, we have seen
that although its brand image is good, its sales are not. Nike products don’t
compromise on quality, and are always full-price. They do not have post-season
discount sales on footwear unlike adidas and Rbk. While no brand can neglect
the highly price-sensitive consumer, Nike certainly does not target them. They
use their higher perceived value to charge a premium for their products.
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Reebok
Also known by its contraction Rbk, Reebok International Limited is an Anglo-
American Fortune 500 company, now subsidiary of Adidas AG, and producer of
athletic footwear, apparel, and accessories.
Founded in 1895, the family-owned business proudly made the running shoes
worn in the 1924 Summer Olympics by the athletes, Harold Abrahams and Eric
Liddell celebrated in the film Chariots of Fire.
In August 2005, one of the company's largest rivals, Adidas, announced that it
would acquire Reebok for $3.8 billion. The acquisition would increase adidas'
market share in North America and allow it to pose a serious threat to the world's
biggest maker of sports apparel, Nike. The deal was completed in January of
2006.
We gathered from the retailers that in India, adidas and Reebok are still very
much in competition with each other. Both are trying to get to the #1 position
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presumably to garner as much market share as they can, and in the process take
some from Nike as well.
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||| Segmentation |||
For adidas the market segments in consideration are based on demographics,
psychographics and behaviour. The demographic segmentation is based on age,
gender, income and occupation.
The market is segmented into three main categories based on age. These
segments are age groups 1-15 years, 15-35 years and above 35 years.
Based on monthly household income the market is segmented into below
Rs.15000 pm, Rs.15000 to Rs.50000 pm and above Rs.50000 pm. The market is
also segmented based on gender and occupation (which leads to differential
disposable incomes).
Psychographic segmentation is of great importance for the sport shoe industry.
The higher income groups are classified based on their tendencies into four
major categories; the innovators, thinkers, achievers and experiencers. As for the
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groups with lesser resources, they are categorized into believers, strivers,
makers and survivors.
Under behavioral segmentation an important user group is the sports and fitness
conscious population. This segment is further subdivided into gym regulars,
professional and amateur athletes and even drawing-room sports enthusiasts.
||| Targeting & Positioning |||
Based on information gathered from retailers and adidas executives, it is evident
that the major demographic segment targeted by adidas is the age group of 15-
35 years. Very few footwear products are aimed at the female market.
adidas targets households with monthly incomes greater than Rs. 15,000.
Households with incomes between 15,000 and 30,000 rupees per month don’t
buy a new pair as often as higher income brackets. This is primarily because
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they use shoes as shoes and not as style/image products. It is important that
when this group enters the market with an intention to buy, they should buy from
adidas. To ensure this, adidas should sell durable, comfortable shoes at a
reasonable price to this group.
A crucial segment adidas has identified is the Call Centre Crowd. This segment
is substantial in the metros and is expected to continue its rapid growth. It
consists of image-conscious youth who are earning but are not yet independents.
This means that their entire income is disposable. adidas seeks the highest
share of wallet from these consumers.
Under psychographic segementation, adidas targets…
• Experiencers: young, enthusiastic, impulsive people who seek variety and
excitement.
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• Strivers: Trendy and fun-loving people who are resource-constrained but
favour stylish products that emulate the purchase of those with greater
material wealth.
• Image Drivers: The wealthy few who set the trends in their social circle.
This is the segment responsible for the selling out of the Rs.12499 adidas
One - adidas’ most expensive shoe in India.
The company targets behavioural segments also: The sports and fitness
conscious population is further subdivided into gym regulars, professional and
amateur athletes and even drawing-room sports enthusiasts. adidas has specific
products for each of these sub-categories.
Cross-training shoes, running shoes, etc. are aimed at gym regulars and runners.
Shoes are designed specifically for sports like cricket, football, basketball and
now even adventure sports like rock-climbing. We can take a particular segment
which we call Hardcore football. It refers to young footballers, passionate about
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playing the sport, with the means to pay. A good example here would be adidas’
“Predator”, which sets the standard for football studs.
adidas rightly sees themselves as the world leaders in football shoes. This is the
only sport market in which they lead Nike. The brand has been synonymous with
football ever since Adi Dassler invented the first adjustable rubber screw-on
studs. An interesting fact: Every World Cup winning team before 2006 wore
adidas football boots!
Sport-inspired designs are incorporated into adidas’ lifestyle products for the
sports enthusiast. For example, there is a shoe that is designed like an F1
driver’s shoe. The heel is molded to fit into the floorboard of an F1 car and the
sole is made of Goodyear rubber – the same rubber that F1 tyres are made of!
Despite the effort put into design and manufacturing of the shoe, it is still meant
to be a lifestyle product.
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||| Recommendations |||
After analysing the data, we find that although adidas has a greater market share
than its arch-rival Nike, it still lags behind in brand image. To tackle this problem,
we will now show you what very few Indians have seen. Globally, adidas sells
products under 3 divisions.
www.adidas-group.com provides us with a clear definition of these divisions.
Divisional Strategy
The divisional strategy has been developed to provide three distinct consumer segments with
product and marketing concepts that fulfill their unique needs and desires. The three divisions
are:
Sport Performance Division
Innovate to perform.
This division is completely focused on the athlete who demands performance first and style
second. Every sport is important, but the main categories of running, football, basketball, as well
as the women’s segment, are the primary focus in terms of both footwear and apparel.
Sport Heritage Division
Celebrate Originality.
This division looks to our past for inspiration and direction for the authentic and contemporary
products of the future. These are footwear and apparel products that clearly have a foundation in
sport but are meant for lifestyle and street wear.
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Sport Style Division
Modern Sportswear.
The newest division is directed at the style and fashion conscious consumer who still desires the
look and attitude of sport but in a new, more sophisticated interpretation. It is the foundation in
sport that adidas and this consumer share that makes this division so exciting and full of potential
for both footwear and apparel.
adidas can claim the prime position in the elite SEC, capturing share of both
mind and heart if they introduce adidas Originals (also known as Heritage) and
adidas Style. These are extremely up-market products: High profile designers of
the likes of Stella McCartney and Yohji Yamamoto combine cutting-edge
technology with unique styling and passion for sport.
This will enable adidas to target the Achievers psychographic segment, i.e.
“success, goal-oriented people who focus on career and family and favour
premium products that demonstrate success to their peers.”(Kotler & Keller)
After acquiring a stagnating Reebok for 3.8 billion pounds, adidas must prove the
deal was more than a market share grab and integrate the companies smoothly.
Considering that adidas themselves admitted that the female market is not
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catered to properly but still has great potential for growth, we think that Reebok
should be used to tackle the relatively untapped women’s sport shoe market. It
could additionally tackle the price-sensitive market.
Reebok has previously grown on the base of an urban, street, hip-hop image.
This image does not conflict with any of adidas’ target markets and should thus
be exploited to the full.
adidas could benefit from taking a leaf out of Reebok’s retail book. Reebok does
not allow retailers to hire sales staff. All sales staff have to have passed a
centralised test. This ensures that Reebok hires employees that are equipped
with the right knowledge and attitude towards service that is required to succeed
in the Indian market. We know that service at the point of sales is a crucial
element of the buying experience because 51.46% of the respondents of our
survey marked it as the single most important element.
||| Appendix |||
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Consumer Survey
Age
19-21 53 (44.92%)
22-24 54 (45.76%)
25-27 8 (6.78%)
>27 3 (2.54%)
Gender
Male 89 (75.42%)
Female 29 (24.58%)
Do you own a pair of sport shoes?
Yes 111 (94.07%)
No 7 (5.93%)
If yes which Brand/s? (you can chose more than one)
Nike 39 (22.94%)
Adidas 43 (25.29%)
Reebok 48 (28.24%)
Puma 4 (2.35%)
Power 13 (7.65%)
Other 23 (13.53%)
For how many years do you use a pair of sport shoes?
1-2 73 (61.86%)
2-3 23 (19.49%)
3-4 7 (5.93%)
4-5 3 (2.54%)
>5 12 (10.17%)
What is the highest price range that you are willing to keep as a budget when buying sport
shoes?
500-999 30 (25.42%)
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1000-1499 23 (19.49%)
1500-1999 21 (17.80%)
2000-2499 15 (12.71%)
2500-2999 9 (7.63%)
3000-3999 9 (7.63%)
>4000 11 (9.32%)
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Which is the most important factor to you while purchasing sneakers/sport shoes?
Price 4 (3.39%)
Durability 16 (13.56%)
Comfort 58 (49.15%)
Looks and styling 30 (25.42%)
Brand image 6 (5.08%)
Other 4 (3.39%)
What elements of the shoe are important to you? (you can mark more than one)
Sole 45 (12.82%)
Inside cushioning 59 (16.81%)
Weight of the shoe 71 (20.23%)
Laces 7 (1.99%)
Material 48 (13.68%)
Styling 65 (18.52%)
Color 53 (15.10%)
Other 3 (0.85%)
Which brands advertisements do you like the most?
Adidas 44 (37.29%)
Nike 43 (36.44%)
Reebok 27 (22.88%)
Other 4 (3.39%)
Which brand of shoes would you like to own?
Adidas 40 (33.90%)
Nike 45 (38.14%)
Reebok 25 (21.19%)
Others 8 (6.78%)
Which aspect of buying experience do you consider most important?
Shop Design 14 (13.33%)
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Service 53 (50.48%)
Ambience 14 (13.33%)
Shop Location 19 (18.10%)
Others 5 (4.76%)
Respondents: 118; largely from IMT Ghaziabad, Delhi School of Economics, Jawaharlal
Nehru University, FMS and MICA.
* note: the bar graphs are not actual representations of the figures besides them
Survey designed on createasurvey.com and circulated online
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